Two Bear Stearns hedge funds have been on the brink of collapse this week after bets on the subprime mortgage market went bad. The story is being closely watched on Wall Street for its potential impact on financial markets.
Earlier Thursday, Merrill Lynch sold about $100 million of the $850 million in collateralized debt obligation bonds it seized from the troubled hedge funds.
Merrill had seized the assets on Wednesday. That move marked its departure from the fund, along with at least three other banks that closed their positions, sources told Reuters. But the failure to sell the entire block may have indicated the investment bank was unhappy with bids received on the assets, a fund manager said.
The sales of the CDOs have stirred controversy in the market since the securities are not often traded, and some managers contend the assets' values are inflated over what they could garner if sold.
The two hedge funds - called High Grade Structured Credit Strategies Enhanced Leverage Fund and High Grade Structured Credit Strategies Fund - made bad bets on securities linked to subprime mortgages and turned in significant losses through April. The funds are reported to be working with adviser Blackstone Group to restructure.
In an appearance on CNBC's "Squawk on the Street", Faber said the need to liquidate the assets in the fund could not only impact the value of similar securities but also have a ripple effect on the value of other types of securities and even the recent string of leveraged buyouts.